THE JUDICIAL INTERPRETATION OF SAROD RULES

In a recent decision rendered by the Hon’ble Delhi High Court in IRB Ahmedabad Vadodara super express Toll way Private Limited vs. National Highways Authority of India, the Hon’ble High court interpreted arbitration rules of the Society for affordable redressal of disputes (herein after referred to as “SAROD”) pertaining to a dispute between two nominated arbitrators regarding appointment of the presiding arbitrator. The Hon’ble court also returned findings as to when a petition under Section 11(6)(b) of the Act1 be filed in the High Court.

FACTS OF THE CASE

IRB Ahmedabad Vadodara super express Toll way Private Limited (herein after referred to as the “Petitioner”)entered into an agreement with the National Highways Authority of India(herein after referred to as the “Respondent”) for conversion of NH-8 between Ahmedabad and Vadodara into a six-lane highway. In the initial agreement, it was agreed upon between the parties that any dispute arising between them shall be resolved by way of arbitration, which was to be governed by rules of arbitration framed by International Centre for Alternative Disputes Resolution. On 14.07.2014, both the parties entered into a supplementary agreement, whereby, it was agreed upon that in case of any dispute, the arbitration shall be governed by the arbitration rules framed by SAROD and the appointment of presiding arbitrator shall be governed by Rule 11.2 of the SAROD rules2 , and thus the earlier provisions in the main agreement were modified accordingly. In 2019, when disputes arose between the parties, the Petitioner invoked arbitration and both parties nominated one arbitrator each. However, when both the nominated arbitrators failed to appoint the presiding arbitrator, the Petitioner filed the petition under Section 11(6) (b) of the Actby urging that the procedure agreed upon between the parties for appointment of the presiding arbitrator had failed.

ARGUMENTS ADVANCED

The contentions raised by the Petitioner were three-fold; first, that since the supplementary agreement specifically provides for the appointment of the presiding arbitrator in accordance with Rule 11.23, the Respondent cannot resort to any other rule, to enable the Governing Body to make such an appointment, secondly, that since the procedure assented to by both the parties for the appointment of the presiding arbitrator had failed, there was no other alternative, than to invoke Section 11(6) (b) of the Act4 , thirdly, that since the procedure consented to, for appointment of the presiding arbitrator has stalled, the presiding arbitrator need not be from the SAROD panel, as the Governing Body has key officials as employees of the Respondent and the earlier panel having 177 names from all fields has been curtailed now to just 33, out of which just 4 arbitrators were legally trained.

Per contra, the Respondent argued that the rules should be construed harmoniously and Rule 11.25 cannot be read in isolation from the other rules and since the procedure prescribed in Rule 11.26 had yielded no result, it was appropriate to invoke Rule 11.57 that provides for the Governing Body to appoint the presiding arbitrator and since the Governing Body was yet to do so, the procedure agreed upon for the appointment of the presiding arbitrator had not yet failed and thus, the petition was premature and warranted dismissal. The Respondent assured the court that the procedure that is in place to enable the Governing Body to make the appointment is free from any partiality and is done by way of draw of lots and moreover, the apprehensions of bias raised by the Petitioner were baseless, since, the reduction in the number of arbitrators on the panel was on account of their terms of empanelment coming to an end on 30.05.2020 and not in any manner intentional.

FINDINGS

The Hon’ble High Court agreed with the argument raised by the Respondent, to hold that in general, the Rules had to be read conjointly, meaning thereby, that Rule 11.28 had to be read in coherence with Rule 11.59 and the two cannot be said to be independent of each other. However, the court further held that each petition would have to be decided in its own facts and circumstances, and since in the instant case, in the supplementary agreement, the parties specifically and explicitly confined the procedure of appointment of the presiding arbitrator exclusively to Rule 11.210 , no resort could be made to Rule 11.511 and thus, the Governing Body12 could not make the appointment. Furthermore, the court also held that since only Rule 11.2 was applicable in the instant case, and the procedure prescribed therein had admittedly flunked, the petition could not be said to be premature and filing of the said petition was the only resort available to the petitioner. In holding this, the Hon’ble High Court placed reliance upon the judgments of the Hon’ble apex court in Voestalpine Schienen GMBH vs. Delhi Metro Rail Corporation Limited13, National Highways Authority of India vs. Bumihiway D.D.B Ltd14 and Central Organisation for Railway Electrification vs. ECI-SPIC-SMO MCML15. Lastly, the Hon’ble High court held that since the procedure agreed upon for the appointment of the presiding arbitrator had failed, there is no reason to restrict the appointment to an arbitrator from the present panel maintained by SAROD. The court held that since the number of arbitrators on the panel had been drastically reduced from 177 to 33, that too with only four members having legal training, the choice for the appointment of the presiding arbitrator cannot be restricted to the 33 members on the panel and thus, the appointment be made of a person from legal background from the erstwhile panel of 177 arbitrators maintained by SAROD. In holding this, the court emphatically placed reliance upon the decision of a coordinate bench of the Delhi High Court in Bernard Ingenieure ZT-GMBH vs. IRCON International Ltd16 and a judgment of the Supreme Court in Perkins Eastman Architects DPC & Another vs. HSCC(India) Limited17.

ANALYSIS OF THE FINDINGS

The Judgment of the Hon’ble Delhi High Court in the instant case is ambiguous to say the least. On one hand the court accepts the arguments advanced by the Respondent, to go on to hold that Rule 11.218 and Rule 11.519 have to be read concertedly, leading to the inference that once the nominated arbitrators fail to reach a consensus on the appointment of the presiding arbitrator, the Governing Body shall have the authority to make such appointment by virtue of Rule 11.520, despite the absence of such direct stipulation in the said rule. However, on the other hand, on an application of the said principle to the instant case, the court holds that since the parties had categorically agreed to make only Rule 11.221 applicable to the appointment of the presiding arbitrator, Rule 11.522 shall have no application at all. These findings, are not only self-contradictory, but also lay down a bad precedent that says that even if otherwise, a set of rules or a particular statute is to be read as a whole in order for its application, if two parties agree to make just one rule/section applicable to their agreement,they can exclude the other provisions at their whim. This is not only against the settled position of law, but also does not fare well with the logic of a prudent man. Furthermore, the Hon’ble court went on to hold that the appointment of the presiding arbitrator should be done from the panel earlier maintained by the SAROD having 177 members and not from the present panel. This finding by the court only leads to the conclusion that the agreement between the parties, whereby they agreed to appoint the presiding arbitrator from amongst the panel maintained by SAROD has been rendered meaningless and the Hon’ble High Court chose the presiding arbitrator from amongst members whose terms of empanelment had already expired, thus eventually changing the terms of appointment unilaterally and against the decision rendered by the Supreme Court in Perkins Eastman23. On a bare perusal of the said findings, it becomes apparent that the Hon’ble court was in the throes of a legal conflict, torn between deciding on principles and eventually bowing to the exigencies as depicted by the Petitioner.

CONCLUSION

The judgment rendered by the Hon’ble High court in the instant case would sooner or later need reconsideration, as the precedent that it sets would lead to a chaotic end to many more cases. The case law referred to by the Hon’ble court has not been properly appreciated and the interpretation of the SAROD rules is vague and delusionary. At a time when the field of arbitration is craving more than ever for seminal judgments to enhance its scope, the judgment in the instant case can be safely termed as obscure.

Notes

1Section 11(6) (b) of the Arbitration and Conciliation Act, 1996,
Where, under an appointment procedure agreed upon by the parties:-

  • (a) A party fails to act as required under that procedure; or
  • (b) The parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
  • (c) A person, including an institution, fails to perform any function entrusted to him or it under that procedure,

A party request [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court] to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
2Rule 11.2 of SAROD- In all cases of disputes claimed for more than Rs. 3 Crores, the tribunal shall consist of add number of Arbitrators to be nominated by the parties. The presiding Arbitrator shall be appointed by the Arbitrators nominated by the parties from amongst the panel maintained by SAROD. For deciding the Presiding Arbitrator, a draw of lots can be carried out from amongst the names suggested by the Arbitrators nominated by the parties. The eligibility criteria for empanelment of Arbitrators will be decided by the Governing Body.
3Ibid
4The Arbitration and Conciliation Act, 1996.
5Supra 2.
6Ibid.
7Rule 11.5 of SAROD- In the event of any party failing to appoint Arbitrator within 30 days of receipt the notice of Arbitration, the Governing Body shall appoint the Arbitrator or Presiding Arbitrator as the case may be by draw of lots.
8Supra 2.
9Supra 7.
10Supra 2.
11Supra 7.
12“Governing Body” means Governing Body of SAROD as defined in Article 9 of Memorandum of Association.
13Voestalpine Schienen GMBH vs Delhi Metro Rail Corporation Limited, (2017) 4 SCC 665.
14National Highways Authority of India vs Bumihiway D.D.B Ltd, (2006) 10 SCC 763
15Central Organisation for Railway Electrification vs ECI-SPIC-SMO MCML, 2019 SCC Online SC 1635
16>Bernard Ingenieure ZT-GMBH vs IRCON International Ltd., 2018 SCC Online Delhi 7941.
17Perkins Eastman Architects DPC & Another vs HSCC (India) Limited, 2019 SCC Online 1517.
18Supra 2.
19Supra 7.
20Supra 7.
21Supra 2.
22Supra 7.
23Perkins Eastman Architects DPC & Another vs HSCC (India) Limited, 2019 SCC Online 1517.

APPOINTMENT OF SUBSTITUTE ARBITRATOR BY COURT

Introduction:

The present case[1]revolves around sections 11 and 15(2) of the Arbitration and Conciliation Act, 1996 (“Act”) where an arbitrator appointed by the Court had withdrawn from his mandate and a substitute Arbitrator was to be appointed. Section 15(2) of the Act specifies that in case the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.

Facts of the Case:

Disputes pertaining to the retirement deed arose between the partners of a partnership firm for which the applicants had first sent a letter-cum-notice, on August 14, 1998 to the respondents. Subsequently, a notice was sent to the respondent to appoint an arbitrator. On the failure of the respondents to do so within 30 days of the notice, the applicants approached the Hon’ble Court by means of an application under Section 11(6) of the Act.

Respondent in its defence submitted that the dispute is of such a nature that it cannot be adjudicated by the arbitrator and requires adjudication under the provisions of the Trade and Merchandise Marks Act, 1958, to which, the Court passed an order appointing a retired judge of the court to act as arbitrator.

The arbitrator issued notices to the parties for preliminary and subsequent hearing to which the parties sought adjournment on the ground that they were negotiating a compromise. Approximately a period of 6 years passed in which no arbitration proceedings took place. Since the arbitrator was resigning from such professional work, he terminated his mandate under section 25(a) of the Act and affirmed that the parties are free to appoint another arbitrator.

 Issues before the Court:

  1. Whether a substitute arbitrator can be appointed after a sole arbitrator resigns where the arbitration clause/agreement is silent on the procedure to be followed to appoint anarbitrator under section 11 read with section 15(2) of the Arbitration and Conciliation https://www.cialispascherfr24.com/generique-cialis-pas-cher/ Act, 1996?
  2. Whether in present case,the parties are free to choose a substitute arbitrator?

Arguments of the Petitioner:

Petitioner argued that the arbitrator has terminated his mandate under section 25(a)[2] of the Act as no arbitration proceedings took place, inasmuch as, no claim petition was ever filed. Further stating that due to absence of any procedure to be followed by the parties for the appointment of an arbitrator under the retirement deed, the only course open to the parties was to apply for appointment of a substitute arbitrator under section 15(2) of the Act for which reliance was placed onvarious decisions of the Supreme Court.

The petitioner placed reliance onShaileshDhariyavan v. Mohan BalKrishan[3], where for the purpose of appointment of a substitute arbitrator, the agreed procedure, already existing between the parties for the appointment of arbitrator would fall within the meaning of the word “rules” mentioned in section 15(2) of the Act. Therefore, the same must be followed for appointing a substitute arbitrator as it had been applied for appointment of the original arbitrator.

Further, the petitioner referred to the matter reported on Anil v. Rajendra[4], stating thatonce the objections have been raisedby the respondent under section 11 of the Act in the original proceedings, no further scope survives for any fresh or other objections, on the principle of res-judicata.

 Arguments of the Respondent:

Section 15(1)(a) of the Act provides for termination of the mandate of an existing arbitrator. Thus, it was submitted thatneither any arbitration claim came to be filed by the applicant nor any proceedings were conducted by the arbitrator when the mandate of the arbitrator terminated owing to his withdrawal.

Respondent further submitted that in view of the clear mandate of section 15(2) of the Act, for the purpose of appointment of a substitute arbitrator, the ‘rules’ that were applicable to the appointment of the first Arbitrator, would have to be re-applied. Thus, relying on section 11(5) of the Act, it has been further submitted that the present application is not maintainable in the absence of any statutory notice having been first issued by the applicant for appointment of a substitute Arbitrator.

Judgment:

It was held that:

  1. In all the cases cited by the arbitrator, the first arbitrator was appointed by the parties and not by the respective High Court or the Supreme Court. Since, in the case under reference, the arbitrator was appointed by the court, therefore, the authority to appoint the substitute Arbitrator is also vested with the court.
  2. Also in cases cited, there pre-existed a set of agreed ‘rules’ between the parties to appoint a consented arbitrator. Along with that, the parties have exercised their power to appoint such/first Arbitrator. Whereas in the case under reference, no agreed ‘rules’ exist between the parties.

Therefore,when the parties failed to appoint an arbitrator within the statutory time limit of thirty days, the court appointed an independent arbitrator. It was further held that there is no provision under the Act where the parties could, thereafter regain their authority to appoint an arbitrator.

The court further explained its point by citing a Supreme Court judgment i.e. in ShaileshDhairyavan[5], in which it was held thatthe same ‘rules’ must be followed for appointing a substitute arbitrator as it had been applied for appointment of the original arbitrator. TheHon’ble Court alsorelied on certain Apex Court judgments likeS.B.P. and Company v. Patel Engineering Limited[6], Government of Haryana PWD Haryana Branch v. G.F. Toll Road Private Limited and others[7] and Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles[8]where it was laid down that a substitute Arbitrator may be appointed according to the rules that were applicable to the appointment of the original arbitrator where the word ‘rules‘ would not be confined to statutory rules or the rules framed by the competent authority but would also include the terms of agreement, entered into between the parties.

Conclusion:

The present judgment throws light on the question of termination and substitution of arbitrator.In ACC Ltd. v. Global Cements Ltd.[9], the Hon’ble Court held that the procedure agreed by the parties for the appointment of the original arbitrator is equally applicable to the appointment of a substitute arbitrator, even if the arbitration agreement does not specifically say so. Interestingly, in the present case, the Apex Court relied of many of its judgments stating that it has the authority to appoint a substitute arbitrator, but it is respectfully submitted that the parties to the dispute must be given the authority to choose a substitute arbitrator and if they fail to do so, then the court can intervene as, while appointing the original arbitrator, it was the parties to the dispute who had the authority to appoint an arbitrator and on their failure to do so, the court interceded.

[1] M/S BasantIspatUdyog P. Ltd. v. M/S Basant Industries and 2 others, 2019(6) R.A.J. 256(All).

[2] The claimant fails to communicate his statement of claim in accordance with sub-section (1) of Section 23, the arbitral tribunal shall terminate the proceedings.

[3]2016(3) SCC 619.

[4]2015(2) SCC 583.

[5]Supra 2.

[6]2009(10) SCC 293.

[7]2019(3) SCC 505.

[8]2006(6) SCC 204.

[9]ACC Ltd. v. Global Cements Ltd., (2012) 7 S.C.C. 71 (India).

APPOINTMENT OF SOLE ARBITRATOR

INTRODUCTION

The case (Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd.) revolves around the appointment of arbitrator under section 11(6) read with section 11(12)a of the Arbitration and Conciliation Act in accordance with clause of the Contract entered into between the parties and the sole arbitrator so appointed may adjudicate the disputes and differences between the parties arising from the contract.

FACTS OF THE CASE

The respondent was desirous of comprehensive architectural planning and designing. Therefore, a request for a proposal for appointment of Design Consultant was proposed for All India Institute of Medical Sciences, Andhra Pradesh.

Perkins Eastman Architects DPC, an Architectural firm submitted their bid. Letter of Intent was issued in favour of the firm and a contract was entered into between the parties.

As per the arbitration clause, in case of any disputes the Design Consultant shall request (Chief General Manager) CGM, HSCC in writing for written instruction or decision. If the Design Consultant(s) is dissatisfied with the instructions or decision of the CGM, HSCC, the Design Consultants(s) may appeal to the Director (Engg.) HSCC and if the Design Consultant is still dissatisfied with the decision he shall give notice to the CMD, HSCC for the appointment of sole arbitrator.

In this case within six days of the signing of the said contract the respondent alleged failure on part of the Applicants which was followed by stop work notice i.e. the respondents were deliberately trying to stall the project and were non-co-operative right from the initial stages.

Later, a termination notice was issued by the respondent alleging non-compliance of contractual obligations on the part of the applicants and termination letter was issued.  Notice was issued invoking the dispute resolution clause.

An appeal was filed by the Applicants before the Director (Engineering) but there was complete failure on his part to discharge the obligations. Therefore, by letter, the Chief Managing Director was requested to appoint the sole arbitrator and thus a letter was addressed by Chief General Manager of the respondent purportedly appointing the sole arbitrator.

Issues before the court

1.Whether the arbitration in the present case would be an International Commercial Arbitration?

2.Whether a case is made out for exercise of power by the Court to make an appointment of an arbitrator?

ARGUMENTS OF THE PETITIONER:-

It was argued that the appointment process contemplated in the contract gave complete discretion to the Chairman and Managing Director(CMD) of the respondent to make an appointment of an arbitrator of his choice and as such, it would be desirable that the Court makes an appropriate appointment of an arbitrator.

The applicant submitted:-

(a) The applicants had duly invoked the arbitration clause;

(b) The Chairman and Managing Director was the competent authority to appoint  sole arbitrator;

(c) But the Chief General Manager of the respondent wrongfully appointed the sole arbitrator;

(d) Such appointment was beyond the period prescribed;

(e) In any case, an independent and impartial arbitrator is required to be appointed.

ARGUMENTS OF THE RESPONDENT:-

Respondent submitted that no case was made out to maintain the instant application. He submitted that two basic submissions were that the Chairman and Managing Director failed to appoint sole arbitrator within 30 days of the requisition and that it was the Chief General Manager of the respondent who purportedly made the appointment of  sole arbitrator. The infirmities thus projected were on two counts, namely, for over-stepping the limit of 30 days; and secondly the appointment was not made by the Chairman and Managing Director of the respondent. He pointed out that the period in terms of requisition dated 28.06.2019 expired on Friday and the appointment was made on the first available working day. Secondly, the appointment was actually made by the Chairman and Managing Director but was conveyed by the Chief General Manager, and as such the alleged infirmities were completely non-existent.

JUDGEMENT

In the present case, Clause 24 empowers the Chairman and Managing Director of the respondent to make the appointment of a sole arbitrator and said clause also stipulates that no person other than a person appointed by such Chairman and Managing Director of the respondent would act as an arbitrator.

The inference is based on the judgement of TRF Limited v. Energo Engineering Projects Limited[1]. It was held that there are two categories of cases. The first, similar to the one dealt with in TRF Limited where the Managing Director himself is named as an arbitrator with an additional power to appoint any other person as an arbitrator. In the second category, the Managing Director is not to act as an arbitrator himself  but is required to appoint any other person of his choice or discretion as an arbitrator. If, in the first category of cases, the Managing Director was found incompetent, it was because of the interest that he would be said to be having in the outcome or result of the dispute. The element of invalidity would thus be directly relatable to and arise from the interest that he would be having in such outcome or decision. If that be the test, similar invalidity would always arise and spring even in the second category of cases. If the interest that he has in the outcome of the dispute, is taken to be the basis for the possibility of bias, it will always be present irrespective of whether the matter stands under the first or second category of cases.

According to section 11(6) of the Arbitration and Conciliation Act 1996 where, under an appointment procedure agreed upon by the parties,— (a) a party fails to act as https://www.cialispascherfr24.com/vente-cialis-en-belgique/ required under that procedure; or (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request  [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court] to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

So, if there are justifiable doubts as to the independence and impartiality of the person nominated, and if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, such appointment can be made by the Court. The application was allowed and an arbitrator was appointed to decide all the disputes arising out of the agreement.

CONCLUSION

The Supreme Court by allowing the application has made it very clear that if the arbitration clause in a contract mentions the procedure as to the appointment of an arbitrator in case a dispute arises between the parties to a contract, then the same must be given effect to. The court has authority to annul the application of the respondent and appoint the arbitrator according to the procedure laid in section 11 of the Arbitration and Conciliation Act.

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The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

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[1] (2017) 8 SCC 377